I’ve been thinking a lot about a recent article from the Portland Business Journal describing TriMet’s new lease for its administrative offices in downtown Portland’s One Main Place building.
On the one hand, it may not be surprising that the region’s transit agency has elected to stay close to the area’s largest transit hub, but I found the article an enlightening encapsulation of the downtown office market for a few reasons.
First, the use of GBD Architects to help them assess their office space needs. It’s no secret many companies are struggling to figure out what their office needs will be going forward. Conventional wisdom is that footprints will decrease as remote work increases. At the same time, many businesses believe that in person office work promotes a culture of collaboration and collegiality that goes missing with 100% remote work. But since most offices in Portland still have not officially “returned to work” yet, lots of uncertainty exists as to what a hybrid workplace might look like. Many companies will likely turn to architects and brokers to help them assess future office needs. In TriMet’s case, they have gone from 120,000 square feet to 95,000. As companies start to figure out their remote work models, we are likely to see reductions in office footprints, which in turn will affect vacancy rates, another interesting item this article discusses.
The article states that the current vacancy rate for the Central Business District, Central Eastside, Lloyd Center, and Northwest Portland is 25.2%. I’ve heard elsewhere that for downtown only, the rates are closer to 22%. Still, that is almost double what the vacancy rates were for downtown office space in 2019. Some brokers project that vacancy rates will continue to increase in 2022 as companies implement their remote work models before stabilizing sometime in 2023 or early 2024. The increased vacancy rates will result in rent decreases, another issue raised by the article.
According to the article, TriMet’s starting rent is $31 per square foot, including operating expenses. Compare that to the $37 per square foot downtown average for Class A office space in 2019. On top of that, they will be getting 14 months of free rent at the beginning of the term, which as the article states, is “a heckuva deal!” Granted, TriMet is leasing a large amount of space, but the rental rate and free rent period are still illuminating. We are likely to see downtown rents continue to decrease as vacancies increase, until the vacancy rate stabilizes.
It’s heartening to see such a large employer committing to downtown. And as this article implies, there may be economic opportunities for companies willing to do the same in the next couple of years.